Markets waver while yields retreat

Dow crawled up 11, advancers over decliners 3-2 & NAZ was down 8.  The MLP index added 3+ to the 266s & the REIT index fell 2 to the 373s.  Junk bond funds fluctuated & Treasuries saw heavy buying which sharply reduced yields (more below).  Oil went up to the 76s & gold inched up 1 to 2068 (close to its recent record high).

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Companies announced the highest level of job cuts in Jan since early 2023, a potential trouble spot for a labor market that will be in sharp focus this year, according to a report from Challenger, Gray & Christmas.  The job outplacement firm said planned layoffs totaled 82K for the month, a jump of 136% from Dec though still down 20% from the same period a year ago.  It was the 2nd-highest layoff total & the lowest planned hiring level for the month of Jan in data going back to 2009.  Technology & finance were the hardest-hit sectors, with high-flying Silicon Valley leaders announcing workforce cuts to start the year.  “Waves of layoff announcements hit US-based companies in January after a quiet fourth quarter,” said Andrew Challenger, senior VP of the firm.  The cuts were “driven by broader economic trends and a strategic shift towards increased automation and AI adoption in various sectors, though in most cases, companies point to cost-cutting as the main driver for layoffs,”  Financial sector layoffs totaled 23K, the worst month for the category since Sep 2018.  Tech layoffs totaled 16K, the highest since May 2023.  Food producers announced 6K, the highest since 2012.  “High costs and advancing automation technology are reshaping the food production industry. Additionally, climate change and immigration policies are influencing labor dynamics and operational challenges in this sector,” Challenger added.  Initial jobless claims totaled 224K for last week, up 9K from the previous week.  Continuing claims, which run a week behind, jumped by 70K, the Labor Dept.

January hiring was the lowest for the month on record as layoffs surged

Merck (MRK), a Dow stock, reported 4th-qtr revenue & adjusted earnings that topped estimates as it saw strong demand for its blockbuster cancer drug Keytruda & HPV vaccine Gardasil.  The pharmaceutical giant posted a net quarterly loss, however, due to previously announced charges associated with a deal the company struck in Oct with the Japanese drugmaker Daiichi Sankyo to co-develop 3 highly sought-after cancer treatments.   The company posted a net loss of 48¢ per share, for the qtr.  That compares to EPS of $1.18 during the year-earlier period.  Excluding acquisition & restructuring costs, EPS was 3¢ for the 4th qtr.  The results include a charge of $1.69 per share related to the Daiichi Sankyo deal.  The company had $14.6B in revenue, up 6% from the same period a year ago.  Those results come as MRK shows significant progress in preparing for Keytruda’s patent expiration in 2028, with a handful of new deals under its belt & key drug launches ahead.  The loss of exclusive rights to the drug will likely mean its sales will fall, forcing the company to draw revenue from elsewhere.  CEO Robert Davis said that the company “feels very good” about the progress it has made to grow its drug portfolio.  But he added “we need more” products, adding that the company remains interested in inking acquisitions or collaboration deals.  MRK also issued its full-year 2024 guidance, which was generally in line with expectations.  The company expects revenue to be $62.7-64.2B & adjusted EPS of $8.44-8.59 this year.  Analysts forecast full-year sales of $63.5B & adjusted EPS of $8.42.  That adjusted earnings outlook includes a one-time charge of roughly 26¢ per share related to its acquisition of Harpoon Therapeutics, which develops immune-based cancer drugs, earlier this month.  The stock rose 3.84.

Merck results beat estimates as top drugs Keytruda, Gardasil post strong sales

The 10-year Treasury yield slumped to a one-month low as investors digested the latest interest rate decision from the Federal Reserve & clues about the path ahead for rate cuts.  The yield on the 10-year Treasury was down by more than 10 basis points at 3.86%, remaining below the 4% mark it had fallen under yesterday & the 2-year Treasury was last 3.1 basis points lower at 4.20%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Following the interest rate decision yesterday, Fed Chair Jerome Powell said it was unlikely that rates would be cut at the next Fed meeting in Mar.  However, he said that rate cuts would likely take place this year.  The Fed's policy statement, which was released alongside the rate decision, also indicated that further rate hikes would no longer be on the table.  That marked a change from the Fed's last policy meeting in Dec.  Investors also parsed fresh ISM manufacturing index data which showed US assembling remained in contraction last month.  The index notched a reading of 49.1 in Jan, slightly above an estimate of 47.2.

10-year Treasury yield dips as investors digest Fed rate decision

The Fed is expecting rate cuts, but timing is unclear & will be based on economic data reported in the coming months.  Increased layoffs are also making investors anxious.  Today, while the stock market is overbought, new money is buying Treasuries & gold remains close to its recent record highs.

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